ICICI Direct recommended hold rating on Natco Pharma with a target price of Rs 635 in its research report dated February 14, 2019.

Q3FY19 results were higher than I-direct estimates on all fronts. Revenues de-grew 1% YoY to Rs 556.7 crore (I-direct estimate: Rs 534.7 crore) on the back of high base of Oseltamivir (flu) in the US EBITDA margins were at 37.4% against 51.0% in Q3FY18 (I-direct estimate: 35.4%) mainly due to high base of gOseltamivir (flu) in the US. EBITDA de-grew 27.3% YoY to Rs 208.4 crore against I-direct estimates of Rs 189.2 crore Net profit de-grew 26.7% YoY to Rs 159.5 crore (I-direct estimate: Rs 151.7 crore), in line with the operational performance.

Outlook

We value the stock on an SOTP basis. Accordingly, we arrive at our new target price of Rs 635, which includes base business value of ~Rs 440 (25x FY21E EPS of Rs 17.7) + ~Rs 195 for NPV of FTF/Para IVs in the US.

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